Suppose in an economy banks maintain a cash reserve ratio of 20%. People hold 25% of their money in currency form and the rest in demand deposits. If the government increases high-powered money by 2000 units, the corresponding increase in the money supply would be:
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Money supply and the banking multiplier has come up 74 times in 7 exams since 2005.
This question is on The monetary base and the money multiplier, part of Money supply and the banking multiplier in Macroeconomics.
How the money supply is built from high-powered money, and what sets the multiplier.
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Question from the DSE 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.